Peru telecommunications

Peru struggles in technological readiness

September 14th 2018 | Peru | Internet

Event

According to The Economist Intelligence Unit's Technological Readiness Ranking, an index published for the first time this year, Peru will improve only slightly in terms of how well equipped it is to deal with technological change. It moves from 73rd position (out of 82 countries) in the historical period (2013‑17) to 69th place in the forecast period.

Analysis

The Peruvian government is currently working on developing a comprehensive regulatory framework aimed at encouraging investment into the growing industry by reducing regulatory uncertainty for investors, and therefore reducing the risk of bringing new technological developments to market.

For instance, in 2012 the Peruvian government approved law 29985, on electronic money (e‑money), which has proven to be one of the foundational pieces of legislation for enabling the growth of e‑commerce and m‑commerce (mobile commerce). The law includes a clear definition of e-money and allows financial institutions to issue the same, facilitating its use by existing companies and new start‑ups.

Consequently, overall e-commerce usage is increasing, driven by rising internet use by the young population, with an internet usage rate of 77% among persons aged 18-25 years. The m-commerce sector is developing particularly quickly, owing largely to greater mobile internet coverage than wired internet coverage, particularly in remote and rural areas. Mobile phone penetration in Peru is high, at 71% in 2016 (the latest official estimates), and this is expected to increase rapidly in the coming years. Although smartphone adoption is relatively low, at 31% in 2016, we expect significant improvement over the medium and long term, especially with a growing Peruvian middle class. The expanding availability of 3G and 4G services will also be supportive of m‑commerce expansion.

Nonetheless, despite relatively low transaction costs for e-commerce and m-commerce, the cost of buying a mobile phone handset continues to act as a barrier to entry for some sectors. For instance, mobile ownership costs 12% of total income for the poorest 40% of Peru's population, well above the industry target of 5% of total income. In addition, efforts to broaden financial inclusion will be impeded by high levels of financial illiteracy and a lack of confidence in the financial system (related to inadequate consumer protection requirements). For reasons such as these, the development of digital economy infrastructure will be concentrated in Peru's urban spaces.

Impact on the forecast

Our view that Peru will continue to lag behind in its ability to cope with technological disruption is unlikely to change.